Daily Kickstart (“Bigly”)

Great! #Dow20K https://t.co/wXFhXBLgag

— President Trump 45 Archived (@POTUS45) January 25, 2017

The Dow closes above 20K for 1st time in history. US economy is being unleashed under President @realDonaldTrump. ?? https://t.co/z4f7KdDMXm

— Vice President Mike Pence Archived (@VP45) January 25, 2017

Bigly, dammit. Bigly.

So bigly in fact, that we’re within 1.5% of a record global high.

Ok, now that that’s out of the way, let’s get to the overnight action which picked up rather notably about an hour ago – so 4:40-ish EST.

UK GDP printed stronger than expected and FX markets reacted, well… stronger than expected. First of all, here are the numbers:

U.K. First Estimate 4Q GDP Rises 0.6% Q/Q; Med. Est. 0.5% Q/Q
U.K. 4Q GDP rises 2.2% y/y vs. med. est. 2.1% y/y
GDP q/q forecast range +0.3% to +0.6% from 54 economists
GDP rises 2% in 2016

Following the data, Gilts sold off, with yield rising as traders began pricing in higher chances of a BoE rate hike. The pound sold off as well following a volatile open. “London open coincided with broad algo dollar-buying,” traders told Bloomberg, before noting that “the pound managed to overcome selling pressure.” Or at least it managed to before the data.

Meanwhile, USDJPY rose sharply, blowing through resistance at 114.

This is all kind of puzzling as evidenced by the following commentary out prior to the GDP data from SocGen, who explains what should have happened:

The bond market which has appeared most mis-priced is the UK gilt market. Bearish of 10- year gilts still seems at least as if not more sensible than bearish of sterling. I’m the worst technical analyst in the world but to my eyes, yields are breaking out of their downward channel. The UK sees Q4 GDP this morning (expect +0.5% q/q) as well as CBI retail sales for January. The more these support the break higher in yields, the less they help sterling bears. GBP/USD is up in rather thin air here, but needs a reason to fall back that we can’t see yet.

UK PM Theresa May is expected to produce a white paper detailing her plan for Brexit today. “We won’t waste time in producing it for the house,” Brexit secretary David Davis said on Thursday. “We will be as expeditious as we can be. The Article 50 legislation is about putting in place the beginning of the procedure, which was decided by the British people last year. That’s not really conditional on the other policy aspects”

Meanwhile, Asian shares were flying high on Thursday following the record close on Wall Street. The Nikkei soared 1.8%. It’s largely the same story in Europe, where equities are green across the board as the global risk rally rolls on.

NIKKEI 19402.39 344.89 1.81%
HSI 23374.17 325.05 1.41%
S&P/ASX 5671.51 21.41 0.38%
Shanghai3159.17 9.61 0.31%
KOSPI 2083.59 16.65
FTSE 7180.98 0.23%
DAX 11859.20 53.15 0.45%
CAC 4893.96 16.29 0.33%
IBEX 35 Idx 51.40 0.54%

In the US, we’ll get initial claims as usual this morning and a raft of other dull-sounding stuff that may or may not push yields around. Here’s the full docket:

8:30am: Advance Goods Trade Balance, Dec., est. -$65.3b (prior – $65.3b)
8:30am: Wholesale inventories MoM, Dec. P, est. 0.1% (prior 1.0%)
8:30am: Chicago Fed Nat Activity Index, Dec. est. -0.05 (prior -0.27)
8:30am: Initial Jobless Claims, Jan. 21, est. 247k (prior 234k)
- Continuing Claims, Jan. 14, est. 2.040m (prior 2.046m)
9:45am: Markit US Services PMI, Jan. P, est. 54.4 (prior 53.9)
9:45am: Bloomberg Consumer Comfort, Jan. 22 (prior 45.2)
10am: New Home Sales, Dec., est. 588k (prior 592k)
10am: Leading Index, Dec., est. 0.5% (prior 0.0%)
10am: Freddie Mac mortgage rates
10:30am: EIA natural-gas storage change
11am: Kansas City Fed Manufacturing Activity, Jan., est. 8 (prior 11)

Speaking of yields, 40-year JGB’s rose above 1% for the first time in 11 months overnight (imagine that for a second, you’re getting 1% to loan the government money for nearly half a century and we’re talking about how high yields are!). Meanwhile, we’re at 2.55% on the 10. Talk about policy divergence.

Here’s the rest of the wrap: